It was your classic annual review, where employees had yearly goals and performance was analyzed at the end of the year.

And it included a "stack ranking" element in which employees were compared to each other, not just to how well they did on their own goals. At IBM, managers would meet and compare their employees, Fortune reports.

This was a popular concept from the 1990's best known because of GE's Jack Welch. It was widely adopted by a lot of companies including Microsoft and Yahoo. Employees disliked it as it pits them against each other.

Employee review = layoff red flag

IBM is currently going through a big transition, moving away from its hardware roots and toward new areas like cloud computing and big data. And CEO Ginni Rometty has the painful task of changing the workforce to match the new goals.

IBM CEO Ginni RomettyFlickr/IBM/ibmphoto24
As such, IBM is trimming jobs in the traditional hardware areas while hiring in the new areas.

IBM has shed thousands of employees, mostly by selling business units.

But it has also been doing ongoing rolling layoffs for years. IBM calls them "resource actions" and "workforce rebalancing." IBM doesn't disclose any information about its layoffs, beyond how much such "workforce rebalancing" costs the company every quarter.

For years, IBM employees have said worried that the annual employee review could give them a red flag, even if they had previously received high ratings, making them vulnerable to being cut.

And so, internally, there was a lot of politics and angst all focused on that performance number.

Thousands of employees helped create the new system

When IBM decided to revamp its employee review process, it asked employees what they wanted to see. The HR department asked for feedback on IBM's internal employee social media site, Connections. The post was read by 75,000 people and got 2,000 comments, Gherson told Fortune.

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HR also conducted online mini-polls where employees could vote on topics like work priorities (how do you value teamwork, skills development, innovation), and so on, an IBM spokesperson told us.

Not surprisingly, employees asked to ditch the stack ranking process.

Employees also wanted feedback more often, and the ability to change their goals as the year went on.

So the new system will no longer label IBM employees with use a single number, a spokesperson says.

Instead, it will include shorter-term goals, feedback at least every quarter and employees will be reviewed based on five general topics: business results, impact on client success, innovation, personal responsibility to others, and skills.

"At the end of the year, managers evaluate employees on the five dimensions - whether they have exceeded, or achieved expectations, for their role, or whether more is expected," a spokesperson confirmed.